Genesco beats expectations in Q3 FY2025, raises annual forecast

Genesco Inc. (NYSE: GCO) has delivered a strong performance in its fiscal third quarter, surpassing expectations despite economic headwinds. For the quarter ending November 2, 2024, total sales rose 3% year-over-year to $596 million, driven by a remarkable 6% comparable sales increase. The company attributed much of its success to strategic changes in its Journeys sales growth, which achieved an impressive 11% increase in comparable sales.

The results underscored the company’s ability to navigate challenges, including selective consumer spending trends and a shift in back-to-school sales that impacted quarterly timing. Adjusted earnings per share were $0.61, exceeding analyst expectations, while the company revised its fiscal guidance upward, projecting adjusted EPS between $0.80 and $1.00 for FY2025.

Journeys sales growth leads the way

Genesco’s standout performer this quarter was Journeys Group, where growth initiatives aimed at improving product assortments and resetting stores paid off handsomely. CEO Mimi E. Vaughn explained that Journeys sales growth benefitted from a strong back-to-school season and robust sales in September and October. Vaughn credited the group’s new strategic focus on enhancing the shopping experience for its double-digit gains, even as other divisions like Schuh Group and Johnston & Murphy faced challenges.

E-commerce expansion trends have also been critical to Genesco’s recovery, with online sales growing by 15%. E-commerce now represents 24% of the company’s retail revenue, a jump from 21% last year. This reflects the increasing importance of digital retail channels in adapting to shifting consumer habits.

Mixed results highlight challenges

While Journeys sales growth continued its upward trajectory, other divisions presented mixed results. Schuh Group’s comparable sales dropped 1%, with currency fluctuations further impacting revenue. Johnston & Murphy also struggled, with a 4% decline in sales compared to the previous year. In contrast, Genesco Brands delivered a 10% sales increase, showcasing resilience amidst broader retail challenges.

The company’s gross margin dipped slightly to 47.8%, largely due to product mix changes at Journeys. However, Genesco mitigated some of this impact through its strategic cost savings program, which included store closures and operational efficiencies.

Focus on store optimization strategy

During the quarter, Genesco implemented its store optimization strategy, closing 14 locations, including 12 from Journeys Group, while opening two new stores. The company expects to close up to 10 more locations by the end of FY2025 as part of its goal to achieve $45-$50 million in strategic cost savings.

As of November 2, 2024, the company reported $33.6 million in cash, significantly reducing debt to $100.1 million from $128.2 million a year earlier. Inventory levels rose by just 1%, reflecting careful stock management.

Cautious optimism for holiday sales

Looking ahead, Vaughn expressed optimism about Genesco’s performance during the critical holiday season, citing a strong start to Black Friday and Cyber Monday sales. However, she noted variability in consumer demand for footwear, maintaining a measured outlook for Schuh and Johnston & Murphy.

Vaughn reiterated that the company is in the early stages of a comprehensive turnaround, but the progress at Journeys demonstrates its ability to respond to evolving consumer preferences. She highlighted that initiatives driving Journeys sales growth could be replicated across divisions to improve overall performance.

Expert analysis of e-commerce expansion trends

Retail analysts view Genesco’s investment in e-commerce expansion trends and cost-saving initiatives as crucial to its recovery. Digital sales growth and omnichannel strategies continue to define successful retail operations in today’s market. However, analysts caution that while Journeys is thriving, Schuh and Johnston & Murphy will require renewed focus to ensure consistency across the business.